China has justified security and environmental reasons for tightening control over rare earth exports
During the time when China's economy was overwhelmingly dependent on exports, important mineral resources such as rare earths, tungsten and titanium were exported at extremely low prices. Exports of these rare earth elements and metals have taken a large share of the world market. China's rare earth exports represent almost 90 percent of the world's total.
However, the world's dependence on China's rare earth minerals has become a burden on China. Any slight adjustment in its export policy arouses objections. During recent weeks, a so-called rare earth war has been a hot topic in the foreign press, although Premier Wen Jiabao has repeatedly stressed that China will not use rare earth exports as a bargaining chip.
The price increases of oil and iron ore have brought China huge losses, which should remind us of how much wealth has been lost through the mass exporting of rare earth elements at low prices. In fact, these resources are linked not only to the economy, but also with security.
China has legitimate security justifications to implement restrictions on the export of resources that could be used for military purposes. That's common international practice.
Export regulation was originally introduced for security issues. After World War II, the United States and other countries established the Coordinating Committee for Multilateral Export Controls (COCOM) against socialist countries; its successor, in effect today, is the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies.
In recent years the restrictions have become ever tighter. On June 19, 2007, the US Ministry of Commerce listed more than 2,500 kinds of technologies, devices, and materials banned for export to China. It even forbade the US government to purchase Lenovo computers for "security" reasons. And the US is not alone. Japan has not only excluded strategic resources from free trade, but also regulated the export of various advanced technologies and devices that might be applied to military use.
Controlling and regulating resource exports to China is seen by the West as having many advantages:
First, they can help slow the development of China, thus maintaining strategic priority.
Second, they can be used as bargaining chips in diplomacy.
Third, they can be used to control the market.
Generally, the World Trade Organization (WTO) requires its member states to observe the principle of free trade, but that's not without exception. In Clause 21 it allows member states to set export restrictions for national security reasons.
Having learnt from these international practices, the Ministry of Commerce of China has also established export regulations, in order to fulfill international responsibilities and defend market order.
Mining rare earths damages the environment. China is taking rightful measures to tighten pollution standards and find a more sustainable way of exploiting the minerals. Mergers and acquisitions are also needed to cut the number of rare earth firms so that polluting companies can be driven out of the industry.
However, China's export regulations on rare earth elements are far from adequate and more are required.
China should follow international practices and WTO rules, and regulate its exports of rare earth through transparent legislation, so as to better ensure sustainable exploitation of the minerals and maintain international trade order.
The author is vice director of International Trade Department of China Academy of International Trade and Economic Cooperation.